1 September 22, 2010 Via Electronic Transmission The Honorable ...

Via Electronic Transmission
The Honorable Eric H. Holder Jr.
Attorney General
United States Department of Justice
Robert F. Kennedy Building
950 Pennsylvania Avenue, NW
Washington, DC 20530
Dear Attorney General Holder:
September 22, 2010
I recently received an extraordinary letter from the retiring Inspector General at
the Department of Housing and Urban Development (HUD). I have attached a copy of
the letter for your review. As you know, in addition to his service as HUD’s Inspector
General, Kenneth M. Donohue is also Chair of the Mortgage Fraud Committee of the
Justice Department’s Financial Fraud Task Force.
In his letter, the Inspector General describes unacceptable circumstances
surrounding the mortgage fraud investigation of Beazer Homes USA and its subsidiary,
Beazer Mortgage Corporation (“Beazer”). According to the Inspector General, he wrote
to you about his concerns with the Beazer investigation on July 6, 2010, but you have yet
responded to him. In fact, neither Assistant Attorney General Lanny A. Breuer nor
Acting United States Attorney Ed Ryan responded to earlier letters from the Inspector
General about this issue. Given the facts he described in his letter to me, I believe it is
essential that you reply and address his concerns.
In March 2007, the HUD Office of Inspector General (OIG) began looking into
allegations that Beazer engaged in widespread and systematic fraud against the Federal
Housing Administration (FHA), resulting in significant losses to the FHA insurance fund.
However, according to the Inspector General, the U.S. Attorney’s Office for the Western
District of North Carolina (“USAO”) has hindered the ability of his office to fulfill its
statutory functions. Specifically, he alleges among other things:
1) The USAO allowed Beazer to choose a law firm, Alston & Bird, to conduct an
“internal review” of the same allegations as the OIG, which served to delay and
interfere with the OlG investigation.
2) USAO officials told OlG agents they were forbidden to conduct interviews or
engage in any meaningful investigation of Beazer while Alston & Bird conducted
their investigation.
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3) The USAO attempted, without authority, to prohibit HUD from pursuing civil or
administrative remedies against Beazer.
4) The USAO showed excessive deference to the, Alston & Bird’s “internal review,”
which cost Beazer $35 to $50 million, thus reducing the funds available to
compensate individual victims of the mortgage fraud and the FHA insurance fund.
5) The USAO failed to consult with HUD and the FHA regarding the deferred
prosecution agreement that it entered into with Beazer as a result, the proposed
settlement provided too little restitution to HUD compared to the losses it
sustained.
6) Following the settlement with Beazer, the USAO removed OIG agents from the
investigation in retaliation for not supporting the proposed deferred prosecution
agreement and for conferring with department officials.
Moreover, the Inspector General notes that the President recently appointed two
former partners at Alston & Bird, the law firm that represented Beazer to serve as U.S.
Attorneys for the Eastern and Western District of North Carolina. Obviously that raises
questions about the working relationship between the OIG and the USAOs in North
Carolina on Beazer-related investigations going forward.
Since these are such serious and substantive concerns, I am frankly shocked that
you would not address them with the Inspector General immediately. Someone needs to
be watching out for the taxpayers and ensuring that those who committed the very types
of fraud that led to the financial crisis are held personally responsible. The Justice
Department owes Americans a detailed explanation of its actions in this case.
Accordingly, please provide written answers to the following questions:
1) According to the deferred prosecution agreement, Beazer agreed to terminate
executives and employees “it identified as responsible” for the misconduct.
a. How many executives and employees have been terminated?
b. What are their names, positions, salaries, and dates of termination?
c. How did Beazer identify these employees for termination?
d. Why and under what authority was the OlG removed from the
investigation preventing these executives and employees from being held
accountable and subject to potential criminal prosecution?
e. Why was the OIG being prohibited from determining whether other
executives and employees may also be culpable in the fraud?
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f. Provide the names of individuals and details of those that have been
indicted or prosecuted so far in this investigation.
2) As you recall, I recently wrote to you regarding the Justice Department’s practice
of funneling money from victim compensation funds to advocacy organizations.
The deferred prosecution agreement in this case also established a victim
compensation fund.
a. How much has Beazer deposited into the fund to date?
b. Are there any plans or arrangements to provide any of the funds to anyone
other than victims of Beazer’s mortgage fraud?
c. How much money has been distributed to how many victims of Beazer’s
mortgage fraud to date?
d. How much compensation has been provided to the FHA to compensate for
its losses?
e. What is total amount of FHA losses attributable to Beazer’s Mortgage
fraud?
f. Why did the Department agree to a settlement allowing Beazer to limit its
liability for losses to the FHA and individual victims of its fraud, when
they had sufficient resources to pay $35 to $50 million for Alston & Bird
to conduct a parallel investigation?
Thank you for your attention and assistance on this matter. I would appreciate
your response to my questions by no later than October 6, 2010. Should you have any
questions regarding this letter, please do not hesitate to contact Jason Foster at (202) 224-
4515. Any formal correspondence should be sent electronically in PDF searchable
format to Brian_Downey@finance-rep.senate.gov.
Sincerely,
Charles E. Grassley
United States Senator
cc: Members of the United States Senate Committee on the Judiciary
The Honorable Shaun L. S. Donovan, Secretary of the United States Department of
Housing and Urban Development
Attachment
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